Alex Loo and Jayati Bharadwaj of TD Securities argue that Asia will face a double shock from higher oil prices and rapid depletion of inventories, which affects economic growth and raises inflation. They see Asian central banks prioritizing growth and limiting interest rate increases. Asian currencies and equities remain under pressure, with KRW and INR likely to remain frail, while SGD and CNY are outperforming, and a defensive long USD bias prevails in the near term.

KRW and INR recorded weaker results than their competitors

“Asia is facing a severe double shock from the current energy crisis. Oil prices are soaring, inventory buffers are rapidly depleting, and Asia – heavily dependent on imported energy via the Strait of Hormuz – is disproportionately exposed.”

“This creates a sharp slowdown in growth (at least ~1.0% of GDP) as inflation rises and a risk of recession in energy-intensive economies such as South Korea and Thailand.”

“Asian central banks are in a difficult situation and are unlikely to raise the currency despite inflationary pressures.”

“Energy-driven terms of trade shock, USD positioning correction, accelerating portfolio outflows and Asian central banks’ reluctance to raise should point to continued KRW and INR weakness.”

“In contrast, SGD and CNY are relative winners due to currency policy, reserves and bond inflows.”

(This article was created with the support of an artificial intelligence tool and has been reviewed by an editor.)